Komatsu's $220 Million Indonesian Order for Mining Machinery Signals Sector Revival

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Researched by Industrial Info Resources (Sugar Land, Texas)--Komatsu Limited (OTC:KMTUY) (Tokyo, Japan) has secured a $220 million order from Indonesia for the supply of coal-extraction machinery. The order is indicative of reviving demand in the commodity and metals sectors. According to Kazuhiko Iwata, president of Komatsu's mining division, the contract covers 300 dump trucks, bulldozers and excavators and is the largest order received this year.

Other supply contracts include a $201 million order for 60 machines for copper and gold mines in Chile from an undisclosed buyer, as well as another $20 million order from the National Copper Corporation of Chile's (Codelco) (Santiago, Chile) northern division, Codelco Norte, for eight units of Komatsu 930-E dump trucks. The trucks, each with a capacity of 330 tons, are expected to be put to work during the last quarter of this year. Codelco Norte has two open-pit mines, Radomiro Tomic and Chuquicamata. Komatsu is expected to start production for new bulk orders during the first quarter of 2010, with the production process spanning at least six months.

In the wake of the economic downturn, Komatsu was faced with a spate of order cancellations late last year across its global offices, including Indonesia, the Middle East and Russia, where a construction-equipment contract was cancelled due to lack of funds. However, with order cancellations peaking in January and no further orders being lost, Komatsu expects to achieve a sales figure of 1,300 mining machinery units during the current fiscal year, which will still be a drop of 20% from last year. The loss incurred from the decline in demand for construction machinery is likely to be offset by the increasing demand for mining equipment, which is expected to grow from the current value of 4,000 units per year to an all-time high by 2012, as miners worldwide already have begun reinstating idling units.

The recovering demand for steel has caused Brazilian miner Vale SA (NYSE:VALE) (Rio de Janeiro) to bring back capacity that had been taken offline. Similarly, another Komatsu customer, Rio Tinto Limited (NYSE:RTP) (London, England), is planning to revive expansion operations at the company's Argyle diamond mine in Australia in 2010. Several mines in Indonesia and Australia, including the Rosebery zinc mine of Oz Minerals Limited (ASX:OZL) (Melbourne, Australia) in Tasmania, are resuming operations. Demand is increasing for coal, iron ore and copper that is linked directly to the growth of the Chinese industry, with a $586 billion stimulus package being offered to infrastructure and construction ventures in China. Meanwhile, in a bid to reduce debts, Rio Tinto has entered into a $19.5 billion agreement with Aluminum Corporation of China Limited (NYSE:ACH) (Beijing), which will now own an 18% stake in Rio Tinto and a few of the company's mining resources.

While infrastructure ventures receive an impetus in China and India, demand for equipment in other parts of the world is expected to decline. However, Komatsu plans to capitalize on the requirements for periodically replaceable spare components such as teeth, buckets, axles, and transmission cables, as well as the servicing of engines, which will continue to be in demand as long as mines are in operation.

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